Question

The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude:

a) Company B has more debt than Company A.
b) Company B has less financial leverage.
c) Company A has less financial leverage.
d) Company A has 10% more assets than Company B.
e) Both companies have too much debt.

Answer 1

An investor can conclude that Company B has less financial leverage compared to Company A. Correct option is B.

Step-by-step explanation:

The debt ratio of Company A is .31 and the debt ratio of Company B is .21. Based on this information, an investor can conclude that Company B has less financial leverage compared to Company A.

The debt ratio is a measure of how much debt a company has relative to its total assets. A lower debt ratio indicates that a company has less debt and is therefore less leveraged.